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Guide to Mutual Funds

Systematic Withdrawal Plans (SWP)

Just like purchasing a mutual fund, you can invest either in lump-sum or through the SIP mode while redeeming as well you can either withdraw as a lump sum or through the Systematic Withdrawal Plan (SWP) route. 


A systematic withdrawal plan is exactly the opposite of a systematic investment plan. The investor withdraws a fixed amount or fixed units at predefined dates at regular intervals (annually, quarterly, monthly, weekly, etc.). 


In an SWP, redemption is done in a phased manner. The amount is credited directly back to your bank account registered with the mutual fund. 


For example, if you have ₹100,000 in a mutual fund scheme which is equal to 250 units, you can either withdraw ₹10,000 every month for 10 months or 25 units monthly for 10 months through the systematic withdrawal plan.


Why are SWPs a Good Option?


When a person has a financial goal in mind, he/she starts saving and investing to meet that goal. When an investment is already in profit, the investor may not want to expose it to the volatility of the market, but may not want to deprive it of the chance to grow further as well. 


In that case, the investor will opt for an SWP, where regularly a certain amount is withdrawn, while the rest of the fund stays invested to benefit from market volatility. 

Moreover, if your financial goal needs to be financed in a phased manner, an SWP might be the ideal option for you. It will ensure that funds are available at the right time to meet your goals. 


An SWP can also work as a second source of income for investors. For retirees, SWPs can be a good option to fund day to day expense needs. 


However, please note that SWPs may be exposed to taxation, depending on which kind of fund you are withdrawing from, debt or equity, and when you are withdrawing – within 1-year of investment or after.


Benefits of SWP


SWPs have a range of benefits:

1. Flexibility

As we mentioned above, SWPs offer a huge amount of flexibility. You can book your profits in the market, finance your regular cash flow needs and use it as a second source of income. 


2. Capital Appreciation

While an SWP is in force, the lump sum amount remains invested in the market. Thus it gets the benefit to grow with time. 


3. Convenience

SWPs are a convenient option for all kinds of investors. An SWP can be done from any kind of mutual fund – debt, equity, or hybrid.  


4. Rupee Cost Averaging

Since SWP is the exact opposite of SIP, SWPs also have the benefit of rupee cost averaging. Withdrawals happen at different market levels. Hence, different NAVs are applied for each withdrawal. This helps the investment in the long run. 

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